Borrowing norms for states relaxed

Govts can get additional Rs 21,000 crore

The cabinet which met under the chairmanship of the Prime Minister here, decided to offer the concession to the states.

Information and Broadcasting Minister Ambika Soni told newspersons that the cabinet has approved relaxation of the Debt Consolidation and Relief Facility (DCRF) guidelines, enabling the states to borrow up to 4 per cent of their Gross State Domestic Product (GSDP) during 2009-10.

The states are unlikely to lose other benefits under DCRF, if they comply with the modified fiscal deficit targets.

The States will have to suitably amend their respective fiscal responsibility legislation if required. The Ministry of Finance would write to the Thirteenth Finance Commission to make appropriate adjustments, Soni said.

The Ministry of Finance has been fixing the annual borrowing ceilings for states largely in accordance with the fiscal deficit targets recommended by the Twelfth Finance Commission and accepted by the centre.

While the 2008-09 targets of 3 per cent has been relaxed up to 3.5 per cent due to the economic slowdown. A further extension of this relaxation has also been agreed for the fiscal year in order to spur infrastructure development and employment generation.

During his budget presentation in July, Finance Minister Pranab Mukherjee had stated that government has substantially increased gross budgetary support for annual plan (2009-10) owing to the limited fiscal space caused by reduction in CENVAT and Service Tax rates. Bulk of the increased support will go to public investments in infrastructure. The state governments will be allowed to borrow 0.5 per cent additional sums for this purpose.

The Finance Ministry expects this to reverse the impact of the economic crises and accelerate medium-term growth.

DH News Service

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